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US$2.3bn financial package agreement for Panama Canal

US$2.3bn financial package agreement for Panama Canal

The allocation of the financial package, which will cover a portion of the US$5.25 billion total cost of the project, will be: Japan Bank for International Cooperation – US$800m, European Investment Bank – US$500m, Inter-American Development Bank – US$400m, Corporación Andina de Fomento and International Finance Corporation – US$300m each. The remaining amount for the project will be financed through Canal-generated cash flow.

The negotiated finance structure includes provisions for the ACP, including a 20-year amortising period with a 10-year grace period and establishes unsecured, untied financing for the ACP, whereby there are no prerequisites to contract from any one source. The ACP reached a “Common Terms Agreement” whereby the five agencies agreed to equivalent terms and conditions.

Expansion will mean a new lane of traffic along the Panama Canal through the construction of a new set of locks, which will double the capacity and allow more traffic and longer, wider ships.

Since July 2007 the ACP, in conjunction with its financial consultant Mizuho Corporate Bank and its international legal advisor for financing Shearman & Sterling, approached financial institutions in Panama, the USA, Hong Kong and the UK to determine the most viable financing for the waterway’s expansion programme.

Recently Moody’s Investors Services, one of the world’s top credit rating agencies, gave the ACP its first-ever rating with a prospective ‘A1’ investment grade as a government-related issuer and a prospective ‘A2’ for the US$2.3bn financing.

“The geographic diversity of the offers and the high profile of the institutions, demonstrate the international market’s trust and confidence in the high-growth performance of the Panamanian economy and the successful management of the Panama Canal,” said ACP’s CEO, Alemán Zubieta.

The agreement was signed by all parties during a ceremony in Panama City, in the presence of President Torrijos’ yesterday (9 December). Thanking the international lenders for their “trust and confidence” in Panama, Zubieta said, “We have reached a major milestone for both the Canal and our country. The support of these major lenders for the largest infrastructure project in Latin America is truly encouraging and inspiring.”

Since the handover of the Canal from the United States to Panama on December 31, 1999, the ACP has changed its operations from a profit-neutral utility to a market-oriented business that is focused on customer service and reliability. Under ACP management, there has been a significant reduction in the time taken to transit the canal, an increase in tonnage and in transits of Panamax-size vessels.